Auto Company Bailouts III: Should Congress Agree to Auto Company Bailouts?

Part III: Destroying the National Currency

I could write thousands of words about monetary policy in the Federal government over the last 200 years, but that would put you to sleep.

I could write about what is in the US Constitution about the creation of money, but that might only serve to bore you.

So instead, I’m writing a short article on an elementary school level about money.

Money is the medium of exchange that we use for buying and selling goods and services. It makes buying and selling easier than trying to figure out what everything is worth. For example, how many eggs would I have to trade you for five pounds of nails? That value could change every day. Money makes it easier to buy and sell.

Money takes a lot of forms. It can be in coins of various denominations, such as a penny, nickel, dime, quarter, half-dollar or dollar. It can be made of gold, silver, or other metals.

Dollars were invented in the Coinage Act of 1792. They were a weight of gold or silver, not a value. A gold dollar weighed 270 grains of pure gold. A silver dollar weighed 371 grains of pure silver.

Paper money started out as receipts for gold and silver deposited in a bank. People thought it was easier to carry and trade lightweight paper money instead of heavy bags of coins. So paper money began to circulate in the economy. But it had a redemption value. Everyone knew that they could go to the bank and trade that paper dollar for one gold or silver dollar whenever they wanted to.

When you have one dollar of gold in the bank, you can only get one paper dollar “receipt.” If the bank were to issue two receipts for one dollar, you could give two different people each one paper dollar. But both of them would be able to redeem the paper money at the bank…but not for the full value of the gold, but only half the value. This is clearly theft and fraud, because you took a dollar value and only gave fifty cents in return. You should be arrested and put in jail.

Later in US history, Congress established the Federal Reserve to manage the US money. After a short while, the Federal Reserve began to produce paper money, called “currency,” that had no redemption value, and was not tied to gold or silver in the bank. The paper money had only the value that the buyer and seller agreed to. This is what is known as “inflation,” which means that the paper money keeps losing its value over time. No one but the government can cause inflation, no matter what others may tell you. That also means that it takes more and more paper money to buy things than it did when it was backed by gold or silver. Inflation cannot happen when paper money is backed by gold and silver.

The Federal Reserve has been issuing paper money since the 1930s. And the value of our money has been falling steadily since then, only worth about 5% of what it was before the Federal Reserve.

Another way to handle your money is with a checking account. You deposit money in your account and the bank allows you to write checks, which are like receipts, to pay for purchases. Then the seller presents your check to your bank, and the bank gives the seller that amount of money from your account. However, if you write checks when there is not enough money in your account, you are stealing and committing fraud. You should be arrested and put in jail.

Normal people cannot write checks with no money without committing a crime. However, the Federal Reserve and Congress do it every day.

If it is a crime for a citizen to write bad checks, it is a crime for politicians to write bad checks. Just because a politician does it doesn’t make it right. And it is always wrong to steal the value of our money from us like the Federal Reserve does.

How does this relate to the automobile company bailouts? The Federal Reserve, Congress and the President all agree to make money available to the automakers. However, they have not deposited enough tax money into their bank account to cover their checks. So, instead of collecting more taxes from the citizens, they simply print up more paper money and cause even more inflation.

So, bailing out failing businesses with tax money or Federal Reserve paper dollars destroys our money supply, and makes our currency worth less and less over time.


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